Accounting is important, which isn’t news to us. We were surprised to learn about the historical significance of accounting, though. This is what Jacob Soll, a professor of history and accounting at USC, addresses in his book The Reckoning: Financial Accountability and the Rise and Fall of Nations.
We really loved the introduction in The Reckoning, so we want to address its main points from an advisor’s perspective.
Golden calligraphy account books for the sun king
Soll begins the introduction by talking about how the French King Louis XIV’s finance minister, Jean-Baptiste Colbert, commissioned mini golden calligraphy account books for the king to carry in his pockets. These account books were updated twice a year and they included the king’s expenditures, revenues, and assets (and in King Louis’ case the expenditures outnumbered the assets).
“Here was a starting point of modern politics and accountability: a king who carried his accounts so that at all moments he might have some reckoning of his kingdom.”
As soon as Colbert died, King Louis stopped carrying his accounts because he saw them as “illustrations of his failings of a king.” He made it impossible to unify the accounts of each ministry in his kingdom into one central account, and therefore made it impossible for any financial advisor to have a good reckoning of the functionality of France’s financial system.
Before he died in 1715, King Louis admitted that he had bankrupted France with his spending.
Three lessons we can learn from King Louis' failed accounting
This introductive story in The Reckoning is so powerful in what it teaches that we thought we would point out a few lessons to be learned from the failure of King Louis to keep an account of his kingdom.
Lesson #1: The need for consistency
Lebron James, an expert in basketball, would probably agree that it doesn’t matter if you made a free throw on the court yesterday if you can’t make one during the championship game next week. It didn’t matter that King Louis might have done well with his spending every so often. He needed to get up everyday and make it happen again. It’s all about looking forward because what’s behind you has already happened, and the decisions you make everyday are going to shape your future. King Louis decided he wasn’t going to carry his accounts anymore and kept spending. He shaped the future of France by bankrupting it.
We’re going off the subtitle of the book (Financial Accounting and the Rise and Fall of Nations), when we say that consistent accounts probably would have saved France.
Lesson #2: The need for an advisor + an accounting system
When King Louis’ financial advisor, Colbert, died it didn’t matter that the accounting system had been running well. Without Colbert, the king’s new philosophy became “no longer would a functioning state interfere with his personal will.” The loss of one key person started the downfall.
An advisor can be that key person that is always there, rain or shine, for you and your business. Colbert was King Louis’ constant, and as advisors that would be our role, too.
Automated accounting is another stake that’s going to hold your tent up. In King Louis’ time, everything had to be done manually to keep up a functioning state, but that’s not the case anymore, thank goodness.
Packaged together, automated accounting and a good advisor are the way to make sure your business rises.
Lesson #3: The need to have a reckoning - good or bad
When things start looking bad no one wants to see the numbers. When King Louis’ numbers were good, he probably really enjoyed carrying around his golden account books. When the numbers weren’t good, the king chose to bury his head in the sand which ultimately resulted in the fall of his kingdom.
Frequent reckonings are like building a fence in front of a cliff to protect you from catastrophes. Building a metaphorical fence to prevent financial disasters is way less painful than going out of business (we’re pretty sure, anyway).
Will you carry golden account books now?
Now you know how crucial it is to have a consistent accounting system to be able to have a reckoning, good or bad, of how your business is doing. The right advisor is the piece that helps put it all together.
How much work went into compiling accounts like the ones for King Louis? It’s impressive that back then they would spend the resources to do that. That tells us that the financial ministers in France believed it was an important work. It’s even more interesting that they dressed the books up in gold so that they would be worthy enough for a king to carry around.
Today anyone can carry their accounts with them, not just the “important” folk like kings or big companies. We can do a million times better than what King Louis had thanks to technology and cloud accounting. Why wouldn’t you do it?